The impact of the promised change in direction in energy policies in the US by newly elected president Donald Trump might be smaller than expected, due to the stronger effect of wider market trends already underway, a recent report by Deutsche Bank suggested.
“President-elect Donald Trump campaigned on assurances of a new direction for energy policy and a sharp change from the existing path” research analyst Michael Hsueh said in the report, adding however that “although much is left to be decided we believe the deviation may be smaller than it appears owing to broader and more durable trends in place.”
On one hand, the “planned repeal of the Clean Power Plan is unlikely to boost coal demand as ageing coal-fired generation will be closed anyway in the face of tough competition from natural gas and renewables” the report stressed.
Generation margins “have been poor for the average coal-fired plant, and may be even poorer for less efficient, older plants” it pointed out, adding that “since mid-2010, the generation margin for a typical coal-fired plant has rarely been above a typical gas-fired plant, and has averaged USD -9.3/MWh below gas-fired plants.”
Additionally, new construction of natural gas-fired and renewable power capacity in the medium term “are likely to outpace electricity demand growth based on existing utilisation rates."
“This would gradually squeeze demand for coal-fired generation, unless there is a sustained increase in natural gas prices above USD 4.0/mmBtu” the report agued.
“Moreover, the repudiation of the anthropogenic contribution to climate warming is unlikely to derail the building global consensus, so any withdrawal from the Paris Agreement would likely serve to isolate the United States.”
Trump's America First Energy Plan set the goal of increasing the US's energy independence. However, “net imports of crude oil have already been in decline since 2006” the report noted.
Since Obama took office in 2008, net imports of crude oil and petroleum products have declined by -8.8% annually from 11.7 mmb/d in 2008 to 5.6 mmb/ d currently, and net imports of natural gas and LNG have declined by an even faster -17.7% annually from 8.3 bcf/d in 2008 to 1.7 bcf/d currently.
On the upstream side, “although it is unclear which areas President-elect Trump intends to make available for oil and gas exploration, it is unlikely to make a difference to the pace of production growth in the near term, as the availability of capital, transportation and storage infrastructure are more significant constraints” the report stressed.
Moreover, Trump's aim to expand exploitation of domestic energy reserves is in line with the 2017-2022 offshore oil and gas leasing program “already under development.”
On the other hand, Trump's “well-known disapproval of the JCPOA (Joint Comprehensive Plan of Action) agreement on Iran's nuclear program could well have the greatest impact” the report stressed, “as a reimposition of sanctions would reverse Iran's export gains and assist OPEC in achieving its new output target.”
President-elect Trump has expressed a strong opposition to the Iran nuclear deal, or Joint Comprehensive Plan of Action (JCPOA), agreed on 15 July 2015 and entered into force on 18 October 2015, and “dismantling the deal is reportedly a top priority, according to Reuters” the report said.
"If the Iran JCPOA agreement collapses, other P5+1 (China, France, Germany, Russia, United Kingdom) parties would likely be forced to reimpose sanctions as we assume Iran would resume development of its nuclear program” the report suggested, adding that "a further unknown is that a United States withdrawal would raise the question of whether the preceding 2013 agreement, the Joint Plan of Action (JPOA) which allowed Iranian exports of 1 mmb/d, would remain in effect.”